THE CABINET IS due to discuss the introduction of a model of community or public banking in Ireland – a move that could change the way people access financing and even the way borrowers are treated by their lenders.
In November the Oireachtas Finance Committee had a panel of witnesses before it to highlight the potential benefits of the German ‘Sparkassen’ model of public banking.
This model of public banking falls in between the private commercial banks we are used to in Ireland, and the credit union model. The interest rates for savings deposits are 0%, but representatives from Germany told the committee that people still bring their deposits to Sparkassen because “they know they are safe”.
These banks would offer the same kinds of loans as commercial banks currently offer, but with more favourable terms.
Business loans would include leasing contracts and export financing. Mortgage customers could get a fixed rate for five, ten or 15 years.
Sparkassen is the largest banking group – and therefore market leader – in Germany.
The proposal on the table, put forward by representatives from Sparkassen, as well as the non-profitorganisation Irish Rural Link, is for the establishment of a pilot in the midlands.
Central Bank officials told the Finance Committee last week that they had met recently with these representatives to hear about their proposal. Officials from the Department of Rural and Community Development and the Department of Finance has also completed a report looking at the feasibility of a community-type banking model.
In response to a question from Labour TD Willie Penrose last week, Minister for Rural and Community Development, Michael Ring confirmed that he now has this report and it will be “brought to government shortly” for consideration.
“I will ensure this is done as quickly as possible.”
He said the project team had carried out detailed research into the public banking model, with a particular focus on Sparkassen.
A game changer
Penrose outlined a number of benefits of the model including that these banks would be municipally owned, rather than being nationalised entities.
“They would be not-for-profit and restricted to lending into the regional economy for the promotion of businesses. They would fill the gap left by the demise of building societies, including the ICS. Post offices and credit unions could earn additional income from providing public bank services across the counter at their branches,” he explained.
“The development of a network of regionally based public banks could be a game changer for small and medium enterprises, agribusiness and the regions.”
Penrose said he was concerned that the “dead hand of the bureaucrats at the Department of Finance will scuttle it”.
I am afraid they will resist anything new or novel or anything that represents something away from their cosy arrangements. They got their hands and fingers burned following the economic collapse and the crisis, when they took their eyes off of the ball together with the regulators. I am concerned that they are afraid or are reticent in this regard and that they will kill this before it gets out of the traps. I am keen to give the minister 150% support.
The minister should shake them up in the way he always shakes people up. He should not be afraid to take on the mandarins, who will try to kill this before it gets out of the traps.
“I might want to bring Deputy Penrose into the Cabinet meeting with me,” the minister replied.
“Certainly, this will be brought to the Cabinet as quickly as possible. I do not disagree with what Deputy Penrose has said, but at the same time we gave a commitment and I was given the responsibility to put the matter out for consultation. I did my part of the job. It is now a matter for the Department of Finance and myself.”
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